Now that I’ve had a chance to calm down—these early morning releases get me all atwitter—here are three observations from this morning’s jobs report:
Good news: First, April’s payroll number along with the upward revisions of the prior two months should dispel, at least for now, the idea that there’s some kind of spring swoon taking place in the job market.
Less Good News: Second, the underlying rate of job growth along with the very gradual slide in the jobless rate are consistent with an economy that’s reliably slogging along at about 2%. That’s neither terrible nor great. With better policy, we’d be doing better. There’s a cost to the slog (read on).
Warning: Third, as I stressed yesterday, the signal as to what’s really going on in the real economy is hard to pull out of these monthly reports (note that both of the revisions to Feb and Mar were within the 100K confidence interval I mentioned in yesterday’s post). Analysts should compare how they feel about the US economy today with how they felt a month ago—big difference, right? Yet, actual underlying conditions haven’t changed that much. Those of us in the business of interpreting monthly reports must not forget that we’re taking the temperature of a complicated patient with a not-so-accurate thermometer.
Re point two above, as you’ll see in the figure here, the yearly growth of real GDP is flitting around 2% for awhile now. That’s fast enough to support pretty stable but not-very-fast job growth, which in turn can be counted on to bring the unemployment rate down, but too damn slowly.
The first figure below shows the yearly percent change in payrolls, a good way to smooth out some noise. As you can see, it’s basically been growing at a flat 1.6% for about a year now. BTW, that’s about the growth rate of the 2000s recovery at this point, which turned out to be no great shakes, but the point is, it’s steady job growth (it’s also well behind the pace of the 1990s recovery at this point in that expansion, as I stress below).
The second figure plots the yearly change in the unemployment rate against the same yearly payroll changes just shown. Yes, the data for these numbers come from two quite different surveys of the job market (the payroll numbers come from a sample of businesses, so they can’t tell you who’s not working; for that, you have to survey households). But we all link them up on the first Friday of each month under the perfectly reasonable premise that faster payroll growth ought to be leading to lower unemployment.
And it does. That’s a very tight fit; the payroll change explains 90% of the variation in the unemployment change. Now, consider this.
Using the little equation embedded in that graph, you can ask yourself how much better would we be doing in terms of lower unemployment if we had faster payroll growth. For example, over the past year, payrolls were up 1.6%, as noted. Plug that into the equation from the second figure and you get a predicted 0.6 point change in the jobless rate, the same as the actual change over the past year.
Now, go back to the 1990s recovery, when at this stage we were generating much faster growth. In fact, what is 1.6% now was 3.5% then, i.e., that’s the annual pace of job growth at this stage in the 90s recovery. Plug that into the equation and the jobless rate would be down 1.8 percentage points, meaning the unemployment rate would be more than a point lower than it is: 6.3% instead of 7.5%.
OK, this is a simplistic exercise, and btw, at that point, the Fed could well be slamming on the brakes. But that’s what I mean by costly. I’m glad we’re doing better than we thought (point 1 above) and with all the fiscal headwinds out there, that steady annual pace of job growth ain’t too bad. But bottom line, it’s not good enough to provide working families the job and wage opportunities they need right now, nor the bargaining power that would enforce a better distribution of growth. I’m glad the stock market’s on a tear, but those factors remain serious deficiencies in the current, and I suspect, future economy.
The Relationship Between Yearly Percent Change in Payrolls
And Yearly Change in the Unemployment Rate, 2000-13
Sources: BLS, my calculations.